Posts Tagged ‘Maersk’

The continuing contrasting tale of two shipping lines, one led by a scholar who attended elite ang moh uni ( also an ex-SAF chief and ex-Temask MD with a Stamford postgrad biz degree thrown in); and the other led by a graduate from Copenhagen University, who has an an MBA from IMD, Switzerland, who has only worked with one co. all his life.

NOL is still stuck on a reef, with water pouring in. Neptune Orient Lines Ltd said on 30th October that its net profit fell sharply in the third quarter as the container shipper battled weak demand.

Net profit fell to US$20 million in the three months ended Sept. 30, compared with US$50 million in the same period last year, Neptune Orient said in a statement to the Singapore Exchange.

Revenue fell 10% to US$2.06 billion, it said.

“This is one of the weakest peak seasons we have seen in recent years, characterized by depressed freight rates and industry overcapacity,” the statement quoted group chief executive Ng Yat Chung as saying.

It said general market conditions had not improved in the third quarter, resulting in a muted peak season, adding that the company expects volatile freight rates and overcapacity in the industry to continue.

True most shipping lines are struggling to reach break-even amid volatile freight rates, and even Maersk has warned of a much weaker fourth quarter, following a 12% drop in container cargo rates in recent weeks. Freight rates “deteriorated significantly during the quarter and hence the seasonally low fourth quarter 2013 has started with low freight rates, which will result in a significantly lower fourth quarter result” than in the third quarter, Maersk Line said. Still, the result for 2013 will be “significantly above” the $461 million profit in 2012, it said.

But hey tot scholars and ex-SAF chiefs are paid serious money because they are S’pore’s finest? Juz like ministers like Raymond Lim, Mak Bow Tan and Yaacob. Remember ex-SAF chief Kee Chui said juz like XO carrot cake is more expensive ’cause of the taste, scholars and ministers deserve higher pay ’cause they better?

Skip right to the end if you want to read the political and financial implications of this performance in relation to PM’s rally speech . No it’s not a rant against scholars.

According to DBS in early August, NOL reported a net loss of US$34.6m in 2Q13, and after adjusting for gains on sale of assets and realized gains on financial hedging instruments, results were largely in line with expectations of a US$64m net loss in 2Q13. – See more at: http://sbr.com.sg/shipping-marine/news/nol-suffered-us346m-losses-in-2q13#sthash.VZFIoR8g.dpuf. If truth be told, DBS, like other brokers got it dead wrong: NOL’s losses were 46% lower than expected. Only in stockbroking is such a discrepancy in line with expectations.

On 16th August, Maersk Line, the world’s biggest container shipper, reported a US$439m profit for the second quarter of the year, up from US$227m million a year earlier. Again this was unexpected by analysts, who tot it would only make half the amount. “Maersk Line has made strong and consistent progress and is now an industry leader in terms of profitability,” its CEO said.

It now expects earnings to be “significantly” more than last year’s US$461m rather than simply “above” them as it had stated before. NOL posted a half year net profit of US$41 million compared to a loss of US$371 million last year, and its CEO says “The Group’s results demonstrate that we are on target in our strategy to deliver a better performance through cost management. We will continue in our efforts to strengthen the company’s competitiveness for the long term.”

Note Maersk Line is run by a true blue shipping man*, while NOL is run by a scholar, and former defence chief, and ex-MD at Temasek. But Maersk is the largest container shipping co, while NOL is a distant 8th. It (and the Taiwanese) shippers decided in the late 1990s and early noughties not to fight Maesk for market share, instead focusing on profits. But profits were elusive for all because of overcapacity.

In yesterday’s rally speech, PM rightly warned that the increase in welfare and social spending has to be met by cuts in other bits of the Budget or by increased taxes. Defence is a Budget sacred cow, taking about 25% of the budget or 4ish% of S’pore’s GDP. Given NOL’s relative unperformance under the tenure of an-ex-defence chief, PM should direct Ng Eng Hen to look at the operational cost effectiveness of the SAF. Could S’pore more bang for a smaller buck?

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*Another characteristic of any good CEO, is their ability to understand fully the often complex scope of their company’s operations.

No need to try to do detailed study of Maersk line’s results vis-a-vis NOL.

Maersk Line, operator of the world’s largest container ship fleet, steamed to a profit of US$227m after losses of US$95m a year earlier and US$599m in the previous quarter. NOL “on underlying earnings” made US$7m. Actually “Net loss for the three months ended June 29, 2012, stood at US$118 million, which widened from a net loss of US$57 million for the same period a year ago. This result – which marks the sixth straight quarter of losses – missed market expectations of a net loss of US$67.6 million, a Bloomberg poll of six analysts showed: by 76%,” earlier post .

And Maersk Line is expecting to be profitable this financial year, while NOL says “outlook is uncertain”. And our guy’s a scholar, general, ex SAF chief and ex Temasek MD. Interestingly Maersk turned around despite the problems in Europe. For historical reasons, most of its revenue comes from ships sailing to Europe, unlike NOL which depends on revenue from ships sailing to the US, which is in better shape than NOL.

I was looking forward to comparing the 1Q results of NOL (world’s 6th largest container shipping co) and Maersk’s container division (largest in the world) because as a holder of a few NOL shares (“peanuts” but gd yield) I was interested in seeing how ex-defence chief Ng Yat Chung (and ex-Temasek senior MD) would perform. Mr Ng took over as CEO on I January 2012. He was made made executive director in April 2011. The retired CEO, a shipping man thru and thru, is now an adviser to the CEO.

At the time I asked, “Wonder what relevant experience he brings to the shipping co? I can only think of the experience in a managing big complex organisation. But then I couldn’t think of any reason for his becoming a senior MD at Temasek.”

Well NOL, and Maersk’s container division both came out with unexpectedly very bad sets of results, showing that the container shipping industry is in worse shape than expected with a weak global economy, expensive fuel and plenty of capacity coming on-line.

But NOL’s numbers were still worse than Maersk despite its focus on moving stuff between East Asia and the the US. Maersk also moves a lot of stuff to from East Asia Europe, in addition to the US. As readers will know, the US economy has performed better than the European economies in 1Q 2012.

Maesrk’s revenue was up 7% to US$6.31bn, while NOL’s revenue fell 3% to US$2.38bn. As to losses, NOL lost US$254m, while Maersk lost US$537m. Simplisticly, if Maersk had NOL’s revenue, it would have lost US$203m, i.e. 20% lower. But then along the same lines, NOL shld have made money, not lose money (US$10m) in 1Q2011.

Whatever it is, having a scholar, ex-senior MD from Temasek, and retired general as CEO of NOL, is of no benefit whatsoever when it comes to shareholder value. SIGH.

Let’s hope it’s different in the cabinet, where we have as newbies one ex-admiral and one ex-general, both of whom are scholars.